Companies
IBBI seeks changes to empower investors
Summary
- IBBI said it will make changes to its regulations after examining public comments, for which it has given time till 27 June.
NEW DELHI : The Insolvency and Bankruptcy Board of India (IBBI) has proposed a series of changes to its regulations, including an important new voting method on bids from investors for bankrupt companies which would allow creditors to rank their preferences rather than merely vote in favour or against bids.
The move helps when more than one investor’s proposal to bail out a distressed business is put to vote at the same time.
IBBI has also proposed to give more flexibility to creditors to come up with their claims after a company is admitted into bankruptcy proceedings. This would mean creditors who missed the 90-day window to submit their claims need not go to tribunals to secure an exemption.
In a discussion paper published on Wednesday, IBBI also proposed that the representative of home buyers sitting in committees of creditors of distressed real estate developers should have a greater role to play in making debt resolution a success.
The discussion paper makes it clear that the authorized representative of home buyers has to ensure that the technical matters discussed among creditors are clearly understood by home buyers so that they can take an informed decision.
Also, these representatives have to help the insolvency resolution professional running the bankrupt business to increase the marketability of the assets of the company.
“An authorized representative’s involvement can be valuable in enhancing the marketability of the corporate debtor’s assets," the discussion paper said.
IBBI said it will make changes to its regulations after examining public comments, for which it has given time till 27 June.
While proposing to revamp the voting method to suit situations where there is more than one resolution plan, IBBI said that the current voting framework does not offer a system for creditors to show their preferences on these plans. The bankruptcy code prescribes that all debt resolution plans meeting the norms have to be placed before financial creditors for approval by vote.
The regulator noted that in real estate cases, the real estate allottees tend to vote in favour of all available plans in order to ensure that they are not dissenting creditor and that the developer does not end in liquidation, as liquidation leaves the real estate allottees with no relief.
The proposal is to let creditors vote on the resolution plans by showing their preference.
As per this, all plans will be considered on the basis of preference accorded to them and if no-one gets 66% of votes, the one with the fewest first- preference votes will be eliminated and its first preference allotted to the second- preference plan. Such elimination could result in finding the one most preferred by the creditors among those meeting the voting threshold.
If no plan meets the voting threshold, it is taken that creditors have not approved any resolution plan, IBBI explained in the document.
